Australia’s central bank “second-in-command” warns: If inflation remains difficult to ease, interest rates may be raised again

According to Golden Ten Data, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser stated that if upside risks to inflation materialize and consumer prices fail to fall, the RBA will find it necessary to raise interest rates again.

"Although we concluded last week that the current level of interest rates is appropriate, we remain concerned about the inflation outlook and are highly vigilant regarding upside inflation risks," said the RBA's second-in-command during a fireside chat held in Brisbane on Wednesday.

Last week, at its second monetary policy meeting, the RBA decided to keep the interest rate unchanged at 4.35%, marking the second consecutive pause.

Currently, Australia is once again facing rising inflationary pressures, an issue that had already appeared prior to the global energy shock triggered by the US and Israel attacking Iran. Despite last quarter’s Consumer Price Index coming in slightly below expectations, it remains well above the midpoint of the 2%-3% target range—a level the RBA has not touched in nearly five years.

Hauser stated, "If upside inflation risks materialize and we do not see prices fall, we will have to raise rates again, and we will act decisively." This stance mirrors remarks made by Chair Michele Bullock after last week’s policy meeting.

In its latest quarterly economic outlook, the RBA forecast that inflation would only fall back to the 2.5% target level by early 2028.

At the first three policy meetings this year, the RBA chose to raise rates each time to curb rising prices. Money market data shows the market expects there is about a two-thirds chance of another rate hike before December, though most economists believe the RBA will hold steady for the remainder of the year.

Hauser made these remarks at the annual regional summit of the Queensland Futures Institute, where he was also asked about the issue of housing shortages in the state and nationwide.

"Australia needs more housing, and so does Queensland," he admitted.

"Interestingly, when you look at the data, people often say 'Australia can't build houses,' but that's not true," Hauser said. "On a per capita basis, the number of new homes built in Australia is actually higher than in most countries, but it is still not enough to meet demand."

Commenting on the recent weakness in housing prices, Hauser reiterated that although prices have slipped in recent times, they remain about 50% above pre-pandemic levels.